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Encana Corp. said Monday that it’s reached an agreement to sell its San Juan Basin assets in New Mexico to privately-held DJR Energy LLC for $480 million.

The assets include 182,000 net acres that produced 5,400 boe/d last year, including 3,900 boe/d of liquids, Encana said. The sale is expected to close by the end of the year and have an effective date of April 1, 2018.

For DJR, which is backed by Trilantic Capital Management LP, Waveland Energy Partners and Global Energy Capital, the deal would build its inventory to 1,100 drilling locations in the play, where it operates vertical wells producing from a variety of targets. Combined with its existing San Juan assets, the Encana acquisition would boost the DJR’s position to more than 350,000 net acres located primarily in the basin’s oil window.

Encana has narrowed its focus in recent years to a program concentrated mainly on the Permian Basin and Eagle Ford Shale in Texas, and the Montney and Duvernay formations in Canada. The company produced 337,900 boe/d in 2Q2018, with its core assets contributing 96% of that total. The Permian and Montney continue to drive gains for Encana, where year/year production climbed 43% and 128%, respectively, in the second quarter.

“This transaction is consistent with our strategy and our objective of delivering quality returns to our shareholders,” said Encana CEO Doug Suttles. “It adds to our financial strength and is aligned with our focus on maximizing the value of our assets and disciplined allocation of capital.”

The Calgary-based independent expects to grow annual production by 30%-plus and generate free cash flow this year. The company’s cube development model in drilling wells, which is designed to maximize the value of its land base and drive efficiency into operations, has factored heavily into its strategy. Encana no longer drills single wells, but instead uses a stacked development technique, i.e., the cube, to ensure drilling and completions are optimized.

The sale also marks another step for DJR, which was formed in April 2017 and is led by CEO David Lehman, a former ExxonMobil Corp. executive. Since 2002, the company’s management team has built and sold two companies in Colorado’s Denver-Julesburg Basin.

“We are now poised to become a dominant player in the San Juan Basin as we combine their asset with our existing footprint and focus our efforts on further developing our acreage,” Lehman said.

Senior Editor | Pittsburgh, PAJamison Cocklin joined the staff of NGI in November 2013. Prior to that he worked as business and energy reporter at the Youngstown Vindicator, covering the regional economy and the Utica Shale play. He also served as a city reporter at the Bangor Daily News and did freelance work for the Associated Press. He has a bachelor's degree in journalism and political science from the University of Maine. jamison.cocklin@naturalgasintel.com

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